Credit Unions Relished Used Cars

Vehicle loan originations continued to be a bright spot for credit unions this year.

Through September, vehicle loan growth was estimated to be close to 9% with new vehicle loans up 8.3% and used vehicle loans up 9.4%, according to Brian Turner, director and chief strategist at Catalyst Strategic Solutions, an investment subsidiary of Catalyst Corporate Federal Credit Union in Plano, Texas.

The differences are stark for the same period in 2011 when credit unions were in the midst of a 0.1% contraction when a 9.3% drop in new vehicle loans was offset by a 5.6% increase in used vehicle loans, the data showed.

“October’s results put the annualized volume of sales about 300,000 units lower than the 14.7 million level the industry was hoping,” Turner said. “Still, most car companies reported increased sales for the entire month which could be an indication that the industry remains on an upward track.”

At the Auto Finance Summit held in late October in Las Vegas, John Flynn heard glowing reports about the state of the auto industry. He is president/CEO of Open Lending LLC/Lenders Protection, an auto loan underwriter in Austin, Texas.

“Virtually everyone is predicting a solid year for auto lending growth in 2013,” Flynn said. “Lenders will continue to try and grow market share but not at the expense of loan quality and no major easing of underwriting criteria,” Flynn said.

From a drop in gasoline prices to a bevy of lures rolled out by manufacturers to woo shoppers, the auto industry is on track to post its highest volume since the year before the economy took a turn for the worse in 2008.

Sales growth are in the double digits, with domestic car and truck sales increasing 25% since 2011, according to Auto Nation Inc., which tracked activity through June 2012. The sale of imports skyrocketed 56%, with more than 11,500 cars and trucks sold in June alone.

For credit unions, the resurgence has helped to grow auto loan portfolios, particularly on the used vehicle side. Many have said they are in a more competitive position as credit union loan rates continue to fall. As of April, the industry experienced a 2.3% gain in auto loans, the best posting since 2009 with $1.1 billion of the $3.9 billion annual gain directly tied to growth occurring this year.

That revival has also brought out more aggressive competition with dealers touting 0% financing on new cars in a race to latch on to eager shoppers.

“We’ve had to adjust our strategy a bit. We’re seeing the greatest interest on used autos,” said Teri Rapp, chief credit officer at the $1.2 billion NuVision Credit Union in Huntington Beach, Calif. “We’re offering the same pricing on new and used for our members.”

The 0% financing has certainly changed the way NuVision is courting potential buyers from continuing to adjust rates to car sale partnership promotions, which have proven to be successful. A goal of $1.2 million was set for a May used car sale on the credit union’s property. NuVision surpassed that bringing in $1.7 million and several new member relationships, Rapp said.

In addition to partnering with Autoland Inc., a vehicle buying CUSO in Chatsworth, Calif., and using traditional advertising, which has yielded many pre-approvals, NuVision has installed loan kiosks in its branches so that members can apply online, connect with a representative and get approved in one swoop.

“We want to capture them before they go shopping,” Rapp said.

And in Texas, it’s no secret that going big is the likely way to go in the Lone Star state.

It’s here that one is more apt to find a cooperative such as Security Service that has a loan portfolio equal to the size of its assets–$6 billion.

The San Antonio-based financial institution recently celebrated that billion-dollar lending milestone with indirect auto loans being the clear leader making up 76% of the credit union’s loan portfolio, said John Worthington, senior vice president for Security Service. The split between new and used vehicle loans is close at 55% and 45%, respectively.

“We were in the indirect business when credit unions were accused of being Communists for doing so,” Worthington joked. “Attitudes have changes. We have a business model that has worked successfully.”

Indeed, in addition to being the nation’s top ranked credit union indirect lender in the country, according to Callahan and Associates Inc., Security Service is also ranked first in auto lending among all financial institutions in the San Antonio area and in the entire state of Colorado, where Security Service has a growing presence.

“Because of our unique home equity laws in Texas, our credit unions tend to focus heavily on automobile lending, and Security Service has done a phenomenal job with indirect auto lending,” said Dick Ensweiler, president/CEO of the Texas Credit Union League. “Having reached the $6 billion mark, it’s pretty clear that they have a system in place that works well for them.”